Here is our June 1, 2015 all client newsletter reprint.
CPA Trendlines has been reporting that tax preparers and accountants have had it, calling “2015 the most stressful and confusing tax season in history.” Although our take is maybe not that bad, the IRS continues to unimpress. Lack of staffing because of budget cuts has affected almost every facet of this very large, very powerful, very scary organization.
As we approached the April 15th deadline this year, phone calls to the IRS averaged over an hour on hold before a real live agent answered the phone. And the hold times haven’t changed much since then. For taxpayers, and tax preparers for that matter, who are not perfect and sometimes omit information for a variety of reasons on originally filed tax returns, IRS has been noticeably dropping the ball on any of these so called CP2000 letters. In July 2014 the Kiplinger newsletter wrote; “Response to taxpayer correspondence has slowed so dramatically, to the extent where many filers who sent in documentation establishing that a tax bill was erroneous keep receiving bills;” IRS is way behind on answering correspondence from taxpayers. Last year, IRS responded timely to fewer than half of taxpayers who protested adjustments. Our colleague, attorney Jim Chipman, has successfully defended more that five tax court cases this year because of the IRS’ failure to respond to these CP2000 letters in a timely manner.
Why every client should consider tax planning or as well like to call it, celebrate Tax Freedom Day earlier. Illinois observed April 30, 2015 as Tax Freedom Day, 43rd worst in the nation. Tax Freedom Day is the day when the nation as a whole has earned enough money to pay its total tax bill for the year. Tax Freedom Day takes all federal, state, and local taxes and divides them by the nation’s income. Americans will collectively spend more on taxes in 2015 than they will on food, clothing, and housing combined. That means that your largest budget item is taxes. Unfortunately we spend little or no effort on taking steps to reduce our taxes. And yet with a little planning on our part, it doesn’t have to be that way.
The good news is with the 2014 tax filing season behind us, the 2015 tax planning season is just beginning.
Each year after tax season we stop, take a deep breath, and wonder why our very smart clients sometimes do very stupid stuff with their taxes. Each year we make a list, compiling the knuckle headed stuff that some clients did causing a painful April 15th, with a hope that this list and some tax planning will help you avoid their mistakes. We have supplemented this list, geared to non business owner's taxpayers with a second, business owners slanted list, planned for a second mailing. Please note that references to links at our web site 1taxes.com on can be found on the resources page.
How to avoid that what were you thinking moment. The now retired David Letterman had his stupid pet tricks, we have our stupid tax mistakes or how to avoid that what were you thinking moment.
And the winner of our number one stupid thing smart people do to mess up their taxes is…..
A lot of jobs with little or no withholding. Or spouse's income pushes clients into a higher tax bracket yet they are not recognizing this fact that by not withholding enough you are not paying the correct tax liability. There is no other way to describe it: The IRS does a lousy job helping us figure out the correct amount of withholding from our paycheck. The assumption that the amount of withholding is based upon our dependents has gone the way of the dinosaur. In fact form W-4 is a fairly complicated calculation requiring you to take in account your marital status, whether you itemize deductions, and whether you have more than one job or if you have two spouses working. By our calculation the form requires answering 17 questions, and a good number of calculations. Five in fact. Two solutions to the problem. Call us. Our computer program can make the calculation fairly simply, or check out the link on web site 1taxes.com to the IRS interactive W4 calculator.
Take money out of their IRA or pension plan and don’t have any money withheld for taxes. Almost a tie for number one it is the cause of more heartache when a client takes an early distribution from tax sheltered plans with no withholding. If you have to take money out of your tax sheltered plan don’t forget that there is a 10 percent penalty in addition to Federal tax owed on the distribution if you are under age 59 1/2. Don’t ever take money out of these plans without having the most Federal tax withheld from the distribution. Call our office. We can help.
Take money out of their IRA or pension plan or 401 K and not roll it over to another tax deferred plan. Back on this subject again. Leaving your job usually means cashing in a pension plan or 401 K. We understand that sometimes the money is needed to pay for day to day bills until you can find a new job. But if you don’t need the money don’t spend it, roll it over. We can help you if you don’t know what to do. We can refer you to very competent people that can help with the rollover. Taking the money if you don’t need it means additional tax liability.
Don’t keep any records. Records are very important in our imaginary tax world, a place nobody really lives in, yet we all step in it come April 15th. Recordkeeping is very important. Especially for business tax deductions like car expenses. Jotting down on a daily basis in a daily planner, online, or a pocket calendar is all you need. Keep a file nearby for tax deductible receipts. Better yet get a credit card that you use only business tax deductions. That way you all the receipts organized for you. Your credit card along with your milage calendar is all you need to make April 15th very less taxing.
Give charitable deductions, especially non cash and don’t make any attempt to value the donation. Each year clients drop off blank receipts from the charitable organization you donated your items to. The receipt is incomplete unless you write a note about the date and time of your deduction and a short list of the description of the deduction in your tax deduction file is all you need. The million dollar question is how much should I value that deduction I just made. The internet has made it simpler. We have linked on our website, 1taxes.com, several websites maintained by various charitable organizations to help you value that deduction. It is good stuff and helps you increase your refund.
Not filing your taxes because you don’t have the money to pay. This is a very fatal mistake. Always file, even if you do not have the money to pay the taxes you owe. The IRS considers not paying on time and not filing as two separate issues, and a penalty is involved for each. Those penalties are rather steep It can be as high as 25% of your unpaid tax liability. When you file your tax return, you have several options. You can apply for an "offer in compromise," make monthly payments through an IRS installment agreement, or temporarily delay paying. Whichever is best for you, we will help you contact the IRS right away to let them know you cannot pay. You should pay as much as you can when you file because the IRS assesses penalties and interest on the amount not paid.
Ignore those letters from the IRS. Do not ignore mail from the IRS. If you owe taxes, the IRS will collect. Persons who do not communicate with the IRS about inability to pay can expect a "Notice of Federal Tax Lien" to be filed against their property. In lien terms, this is a lien about the size of Alaska. Few carry more weight. The lien attaches all your property, including your house, car and any future property you might obtain. A levy, which is a legal seizure of property to satisfy a tax debt, is another legal means the IRS can use to collect taxes. This means the IRS can seize your car, boat or home and sell it to satisfy your tax debt or it can place a levy on your wages. More good news is that these liens often stay on your records long after the issue has been resolved or until the IRS gets around to removing it. So it's also the gift that keeps on giving! We have spent significant time and energy in our tax resolution service. If you are in trouble, it really pays to hire us to help.
Big refunds. Isn’t that the point of filing? Big refunds. In fact some clients rate the expertise of their tax preparer with the size of their refund. The bigger the refund the better the tax preparer. Nothing can be farther from the truth. Refunds are nothing more than interest free loans of your money to the government. Then you have to go through the expense and the wait of getting your refund when you file your taxes. Extra withholding doesn’t benefit you, only the government. Don’t stand for big refunds. Stand for bigger paychecks. Your goal should be break even on April 15th.
Assuming the wrong filing status. Single taxpayers are probably the most guilty for assuming that they should file as single taxpayers when in fact they qualify for the much-more-favorable head-of-household (HOH) filing status. Say you're single and your non-adult child lives with you and pays for less than half of his or her own support. If you pay more than half the household's costs, you qualify. You may also qualify if you are still married and lived with your child but apart from your spouse for at least the last half of the year. Finally, if you are single and can claim your parent as a dependent, you can probably file as HOH. This is true even if your parent has his or her own place. You are the HOH if you pay more than half the cost of your dependent parent's home. This year we also had a number of clients for whatever reason, decided to file separately from their spouse. Married filing separately is the highest tax rate, period. You lose certain deductions and credits when you file separately. All too often one spouse will itemize deductions, taking all the mortgage interest and real estate taxes, leaving the other spouse who is forced to itemize with no deductions. Don’t settle for separate. File with your spouse. Or if you are in the middle of a divorce you may in fact qualify for the single filing status, even though you are not officially divorced. IRS rules concerning whether you are in fact single are quite favorable. Much more than state law. Something that you should discuss with us when you file your taxes next year.
Not taking advantage of employer sponsored retirement plans or making an IRA contribution. Although many will agree that contributing to a retirement plan is a good financial decision, a significant number of employees still do not participate in their employer sponsored retirement plans. This lack of participation is often the result of a misunderstanding of the rules or a lack of awareness of the benefits. Not only does taking advantage of your employer sponsored plan save you money, it allows you to grow you to take advantage of tax free growth and tax deferral, and even allows you to get free money. Many times employers will match your retirement contribution. Why is an IRA a good deal? Because money in the plan grows free from the clutches of Uncle Sam. That is, the income from interest, dividends and capital gains can compound each year without taxes nipping away at it. In addition, you also can escape taxes on either the money you put into the plan initially or on the money you withdraw in retirement, depending upon whether you choose a traditional or Roth IRA.
Do You Pay Too Much Tax?
If you’re like most Americans, you probably think you pay too much tax. And you’re probably right! So perhaps you’re considering a new tax pro this year.
Most tax professionals do a fine job putting the “right” numbers in the “right” boxes on the “right” forms. But then they call it a day.
It doesn’t matter how good your tax preparer is with a stack of receipts on April 15. The real secret to reducing your tax bill is planning.
At Tax Partners, we’re different. We don’t just record history. We help you write it, with a complete lineup of court-tested, IRS-approved concepts and strategies to give you the savings you really want.
This year, don’t settle for just “filing” your return. Call me today at 217-241-4597 for your free Tax Analysis. We’ll find the mistakes and missed opportunities that may be costing you thousands, and show you how proactive planning can save those dollars. We guarantee you’ll leave with new information, or we’ll donate $50 to your favorite charity. So call now to schedule your Analysis!
As a ongoing client our service doesn’t just mean we will prepare your tax return. As a benefit of being our client you are entitled to something we call:
The Tax Partners Advantage.
1 Annual subscription to our email newsletter. Ten times a year we update clients, with a locally written newsletter, letting you know what is happening in our tax world and include specific easy to follow tactics on how to reduce your tax liability.
2 Free copies of your tax return. Refinancing? Call our office and we will forward you a copy of any and all tax returns we have prepared for you at no additional charge.
3 Unlimited telephone support. We don’t start the extra charge meter every time you call. Have a problem? Suggestion on how to handle a situation? Call us. We can help.
4 Help with IRS and other taxing bodies correspondence. We don’t close after April 15th. Your preparer is available to help. You can contact us any time of the year.
5 Free look back at previous years tax filings. Let’s face it not all tax preparers are the same. Each year we file amended returns for our clients and have
I appreciate your trust in my firm and I look forward to working together for many years. If you have any questions, call me at 217-241-4597 or email me at taxpartnerclients@gmail.com.
This year’s tax season went a whole lot more smoothly than the last two. Our goal of course is 100% client satisfaction. We value your input. We have put together a small online survey about our tax service. You can find the survey online at our website: 1taxes.com. You will find it on our homepage just click the “Tax Partners Client Satisfaction Survey” link. Please take a few minutes to tell us your thoughts. What did we do right? What can we do better? We all appreciate your input.
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